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NYS Comptroller


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July 29, 2014, Contact: Press Office (518) 474-4015

DiNapoli: New York City's Finances on Solid Footing

New York City projects a balanced budget for fiscal year 2015 and manageable out-year budget gaps under current economic conditions, according to an analysis released today by New York State Comptroller Thomas P. DiNapoli at the annual meeting of the Financial Control Board.

“New York City is on solid financial footing with new labor agreements in place, a strong economy and increased reserves,” DiNapoli said. “The city, however, still has work to do. It must conclude negotiations with the remaining municipal unions, obtain planned health insurance savings and narrow its projected budget gaps.”

In May, the city reached a new labor agreement with the United Federation of Teachers (UFT). Since then, several other unions have reached new agreements with the city, bringing the share of the workforce that has accepted the UFT pattern to nearly 60 percent. To help pay for the new labor agreements, the city and the unions have agreed to work together to reduce the cost of health insurance to the city by $3.4 billion, including $1.3 billion in recurring savings beginning in FY 2018.

The financial plan also includes a number of new programmatic initiatives, including an expansion of full-day pre-kindergarten and after-school programs for middle school students funded from the largest increase in state education aid in eight years. City-funded initiatives include efforts to reduce and prevent homelessness; a pilot program to offer free lunch for middle school students; and an expansion of the capital program to fund a new affordable housing program and to reduce school overcrowding.

The city forecasts a $2 billion surplus for 2014, which was used to help balance the FY 2015 budget. The city’s financial plan projects budget gaps of $2.6 billion in FY 2016, $1.9 billion in FY 2017 and $3.1 billion in FY 2018. The budget gaps are larger than those projected by the city in February, reflecting the cost of collective bargaining agreements and new programmatic initiatives. Still, the gaps are significantly smaller than the historical average over the past 35 years when measured as a percentage of city fund revenues. While the budget gaps for fiscal years 2019 through 2021 could be larger because the cost of collective bargaining is highest in those years, the city has a long lead time to close these gaps.

The city increased the general reserve for fiscal years 2015 through 2018 to $750 million, the largest level ever. It also rescinded the planned transfer of $1 billion from the Retiree Health Benefits Trust to the operating budget and contributed an additional $864 million, raising the Trust’s balance to more than $2.2 billion. The Trust was created to help fund the cost of post-employment benefits other than pensions, but in the past the city has used the Trust as a rainy-day fund.

The Office of the State Comptroller believes that tax revenues are likely to be higher than forecast by the city, particularly in the current fiscal year, because of steady economic growth. In FY 2014, tax revenues exceeded the city’s forecast at the beginning of the fiscal year by $3 billion, and the city forecasts a small increase in tax revenues in FY 2015.

Since the end of the recession, job growth in New York City has averaged 1.8 percent annually, nearly twice as fast as in the nation and New York state. Job growth in the city, however, has been concentrated in lower-paying sectors. These sectors accounted for more than three-quarters of all jobs created in the city since 2009. While the city’s economy is strong today, the possibility of an economic setback increases with each year. The national economic recovery has already exceeded the average length of all recoveries since World War II.

The city expects that ongoing litigation related to the financial crisis, the implementation of new regulations and rising interest rates will constrain Wall Street industry profits in 2014. However, the industry got off to a good start in the first quarter this year with profits of $5.3 billion despite litigation costs and is on pace to exceed the city’s forecast for the year ($14 billion). The financial sector is one of the city’s economic engines and a major source of tax revenues.

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